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Why your pension depends on natural resources

published by asingh on Tue, 02/21/2017 - 17:07

Guest Commentary
By Stewart Muir

The average Canadian might not know it, but 42 per cent of Canada Pension Plan holdings are natural resource companies.

If you want to get a snapshot of Canadian prosperity, an easy method is to take a look at the holdings of the Canada Pension Plan. This federal investment fund is responsible for the pensions of 19 million Canadians, a job it takes very seriously.

Not for the CPP the kind of stocks that are speculative or uncertain. The needs of retirees don't have off years so there is no room for gambling. If you have been thinking that natural resources are somehow "on the way out" in the Canadian economy, because of things you've been hearing the evidence from this source could not be clearer: Think again.

This is worth drawing to the attention of those who are either indifferent to the source of their prosperity as Canadians, or downright hostile to necessary resource activities.

In 2017 we're all well aware that our human footprint must be carefully managed, and that bad things have happened in the past when things went wrong. Since it's not realistic to expect that the world will suddenly stop consuming things, we're much better off as a leading-edge resource nation to ensure we are doing things right when we export our pulp, our lumber, our copper, our oil and gas, our coal, and scores of other essential resource products. There will never be a time in future when these items are not required by humanity.

The equity basket as of March 2016 consisted of 163 publicly traded companies, in which the CPP held shares worth $138 billion (or, if you prefer, $3,803 for every resident). About half can be described as resource companies because they are mainly involved in the design, discovery, extraction, processing or transportation of natural resources including energy.

The CPP investment managers also own all the big banks, and not surprisingly the top investments in the fund are in two such institutions: top dog Royal Bank followed by TD. What is surprising is the presence in third place overall of a relatively little known company that is currently making some key investments in British Columbia natural gas, both "upstream" where it is extracted and "downstream" where it will be turned into LNG for export. That company: Seven Generations Energy. Its CPP-held shares were valued at $899 million last time the pension fund reported.

With groups out there spreading what they must know is false information about resource projects, there is a certain irony that many unwitting individuals are enjoying a comfortable retirement lifestyle in part or in whole because of the success of companies they are told they must oppose.

It's worth mentioning that other pension funds, such as for unions and private companies, also go heavy on resource companies. This is in large part because of the dependable dividends they produce. One company on the list, Fortis Inc., has increased its dividend yield for an unbroken string of 43 years, a unique accomplishment.

Stewart Muir is executive director of the Resource Works Society, an independent body open to participation by all British Columbians who are concerned about their future economic opportunities.